TaxTMI 
TaxTMI 
2018 (2) TMI 1282
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....the facts and in the circumstances of the case and in law, the order passed by the Ld. Assessing Officer ("AO") is bad in law and void ab-initio. 2. That on facts and circumstances of the case and in law, the reference made by the Ld. AO suffers from jurisdictional error as the Ld. AO did not record any reasons in the assessment order based on which he reached the conclusion that it was "expedient and necessary" to refer the matter to the Ld. Transfer Pricing Officer ("TPO") for computation of the arm's length price, as is required under section 92CA(1) of the Act. 3. That on the facts and circumstances of the case and in law, the Ld. AO erred in determining the arm's length price ("ALP") of the Appellant's international transactions at Rs. 17,84,63,646 as against Rs. 16,93,48,801 determined by the Appellant and recommending an addition of Rs. 91,14,845 on that account to the Appellant's income. 4. That on facts and circumstances of the case and in law, The Ld. AO/ Ld. TPO erred while making an aforesaid addition of Rs. 91,14,845 to the value of international transactions by: 4.1 modifying the comparability analysis conducted in t....
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....said expenses have not been incurred in providing technical services outside India. 6.1 Without prejudice to the above ground, the Ld, AO as well as Hon'ble DRP have erred in law as well as on the facts of the case by excluding the foreign currency expenditure towards database fees amounting to Rs. 36,24,838/- from 'export turnover' without correspondingly reducing the same from the "total turnover' for the purpose of computing deduction under section 10A of the Act. 7. That on the facts and circumstances of the case and in law the Ld. AO/ Ld. TPO erred in not examining the validity of initiation of penalty proceedings u/s 271 (1) (c) of the Act. 8. That on the facts and circumstances of the case and in law, the Ld. AO erred in charging and computing interest under section 234B and 234D of the Act. That the appellant craves leave to add, alter, amend or withdraw any ground of appeal either before or at the time of hearing of this appeal as they may be advised. That, the above grounds are independent and without prejudice to each other." 4. Vide Ground Nos. 1 to 4.7, the grievance of the assessee relates to the addition of Rs. 9....
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....e arm's length price of database fees transaction. The assessee selected following 6 comparables whose average margin was at 14.04%: S. No Name of the Company Return on Cost (3 year weighted average as per TP Documentation) 1 Aditya Birla Minacs Worldwide Limited 3.39% 2 Allsec Technologies Limited 6.60% 3 Cosmic Global Limited 17.84% 4 Maple Esolutions Limited 25.64% 5 Caliber Point Business Solutions Limited 24.26% 6 Msource India Private Limited 6.54% Arithmetic Mean 14.04% As the assessee earned operating margin on cost at 14.77% which was within the range of +/-5%, therefore, it was contended by the assessee that this transaction was at arm's length price. The TPO, however, did not agree with the various filters used by the assessee in the TP study and by using certain more filters, he rejected 4 comparables choosen by the assessee and selected 5 new comparables. He, thus, selected a set of following 7 comparables (2 from assessee's set and 5 new companies) whose average margin was 26.67%: S. No Comparable OP/OC 1. Aditya Birla Minacs Worldwide Limited 0.50% 2. C....
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....gin of the margin. Accordingly, the adjustment is calculated as under: Operating Cost 14,75,51,588 ALP at a margin of 20.95% 17,84,63,646 Price received 16,93,48,801 Adjustment u/s 92CA 91,14,845 Accordingly, the AO made the addition of Rs. 91,14,845/- on account of arm's length price. 9. Now the assessee is in appeal. The ld. Counsel for the assessee challenged the inclusion of M/s Eclerx Services Ltd. as comparable for the following reasons: "a) Functionally Dissimilar: The Company performs functions which are not comparable with that of the Appellant. - Eclerx provides services through two business units - Financial services and Sales and Marketing services. - Under financial services segment, it provides professional services including consulting, business analysis and solutions testing. Broad services provided in this segment includes trade processing, reference data, accounting and finance, and expense management activities. (Refer page 52 of Cnv. Paperbook) - Under sales and marketing services, it provides online operations & web analytics, CRN and business intelligence, competitor benchmarking and pr....
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....12 (supra) which read as under: "23. TPO used this company as a comparable on the basis of information obtained u/s 133 (6) and annual report for FY 2006-07. Assessee raised objection for the inclusion of this company in the list of final comparables on ground of functional dis-similarity and relied upon order passed by ITAT, Delhi Bench in the case of Copal Research India Pvt. Ltd. (ITA No.1713/Del.2014) (available at pages 741 to 757 of the Paper Book-III). Assessee also raised objection that this company is a Knowledge Processing Outsourcing (KPO) company rather than routine service provider. 24. Comparability of ECLERX has been examined by the coordinate Bench in case of Copal Research India Pvt. Ltd. (supra) which is also engaged into ITES services similar to that of the assessee. 25. When we examine the functional profile of the assessee company which is into providing Information Technology (IT) Enables Back Office Support Services related to creation and maintenance of data base of prospective employers and candidates who sent their resumes to Hendrick & Struggles International Inc. (HSII), the assessee provides services to HSII only having minima....
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....t and reporting services. It also provides tailored process outsourcing and management services along with a multitude of data aggregation, mining and maintenance services. It is claimed that the company has a team dedicated to developing automation tools to support service delivery. These software automation tools increase productivity, allowing customers to benefit from further cost saving and output gains with better control over quality. Keeping in view the nature of services rendered by M/s eClerx Services Pvt. Ltd. and its functional profile, we are of the view that this company is also mainly engaged in providing high-end services involving specialized knowledge and domain expertise in the field and the same cannot be compared with the assessee company which is mainly engaged in providing low-end services to the group concerns." 11.1. We find that the assessee also cannot be said to have relatable degree of comparability because primarily assessee was engaged in providing primary data for various field of activities but not complete business solutions. Therefore, this company could not be treated as comparable for the purpose of determining ALP of the transactions b....
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....arties and carefully gone through the material available on the record. It is noticed that an identical issue has been decided by the ITAT Delhi Bench 'I', New Delhi in the case of Global Logic India (P.) Ltd. Vs DCIT (supra) wherein it has been held as under: "10.2 Furthermore, we note that in a catena of decisions of the tribunal, it was held that for computation of deduction u/s. 10A of the Act total turnover in the denominator and export turnover in the numerator have to be read in the same manner and accordingly when the expenses incurred in foreign exchange are to be excluded from the export turnover in the numerator, then the same treatment have to be given in the total turnover in the denominator. We further note that ITAT, Delhi Bench in assessee's own case for assessment year 2005-06 relying upon the decision of the ITAT, Special Bench in the case of ITO v. Sak Soft Ltd. [2009] 30 SOT 55 (Chennai) has allowed the appeal of the assessee and directed the Assessing Officer to recomputed the deduction u/s. 10A after reducing communication expenses from the export turnover as well as total turnover." 18. So, by respectfully following the aforesaid referred to o....
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.... search criterion and inconsistently applying certain additional quantitative filters; 3.4 rejecting Omega Healthcare Management Services Private Limited which was comparable to Appellant, on ground of unavailability of reliable financial information; 3.5 selecting companies such as Accentia Technology Limited, Eclerx Services Limited, Infosys BPO Limited and TCS E-Serve Limited which were not comparable to the Appellant on various grounds; 3.6 confirming the selection of current year (i.e. financial year 2010-11) data for comparability; 3.7 erred in not appreciating the fact that there is no motive on the part of the Appellant to shift the profits to any other jurisdiction since it claims tax holiday benefits as per the Software Technology Park of India. For Corporate Tax Matters: 4. Based on the facts and circumstances of the case, the Ld. AO has erred in law as well as on facts in holding that the expenditure incurred by the Assessee in foreign currency towards communication charges amounting to Rs. 69,955/- has to be excluded from the export turnover for the purpose of computing the amount of deduction under section 1OA of t....
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....general in nature, Ground No. 2 was not argued and Ground Nos. 6 is pre-maturely raised, so these grounds do not require any comment on our part. 23. Vide Ground Nos. 3 to 3.7, the grievance of the assessee relates to the addition of Rs. 2,03,88,463/- on account of arm's length price. 24. The facts related to this issue in brief are that the assessee filed transfer pricing report in Form No. 3CEB. Since, the assessee entered into an international transaction with the associated enterprises totaling to Rs. 16,48,33,926/-. The AO referred the matter to the TPO to determine the arm's length price. In the TP study, the assessee selected 7 comparables on which the TPO commented as under: Sl. No. Name of the Company Remarks 1. Aditya Birla Minacs Worldwide Ltd. This company fails export filter (60.51%). Hence, not a suitable comparable. 2. Caliber point Business Solutions Ltd. This company is having different financial year ending i.e. December. Hence, can't be considered as suitable comparable. 3. Cosmic Global Ltd. This company fails export filter (52.96%). Hence, not a suitable comparable. 4. Fortune Infotech Ltd. This company is havi....
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....sys BPO Ltd. 17.86% 7. Jindal Intellicom Ltd. 13.70% 8. TCS E-serve Ltd. 69.31% Average 30.66% 27. The TPO proposed an adjustment of Rs. 2,22,87,118/-. Thereafter, the AO passed the draft assessment order against which the assessee filed the objection before the ld. DRP. The assessee has taken up the issue relating to modification/rejection of economic analysis. The ld. DRP observed that the TPO had sufficient reason to reject the economic analysis and that the assessee had conducted a fresh research to identify appropriate comparables to benchmark the international transaction entered into by it. The ld. DRP also was not inclined to interfere with the order of the AO/TPO on account of use of data, even if accounts were not maintained in terms of financial year. The reliance was placed on the following case laws: • Techbooks International Pvt. Ltd. Vs DCIT (2015)-TII- 282-ITAT-Del.-TP • Hewllet Packard India Globalsoft Pvt. Ltd. Vs DCIT (2015)-TII-409-ITAT-Bang-TP 28. The ld. DRP observed that the company M/s ICRA Techno Analytics Ltd. was not a valid comparable for ITES segment on the ground that it was not funct....
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....%. The ld. DRP has also held that the far profile of the company is similar. Before us, ld. AR submitted that the company is dissimilar functionally. In addition to BPO services, it is also engaged in technical services such as software testing, verification and validation. It has also developed software such as transport management software. It does not have segmental reporting too. It was further submitted that the company owns substantial intangible assets in form of software licenses and it makes a payment for Tata Brand and therefore it gets the benefit use brand value of Tata. b. Ld. DR relied on the orders of lower authorities and submitted that all the above reasons for selection of this comparable has been considered by the TPO. c. We have also considered the rival contention for exclusion of TCS e-service Ltd. It is mainly involved in transaction processing and technology services. It carries on business of providing technology service such as software testing, verification and validation. It is also developed a software such as transport management software therefore functionally this company is dissimilar to the assessee company. It also owns huge inta....
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....cial authorities, we hold that Eclerx Services Ltd. being functionally different cannot be treated as comparable to the assessee." "67.We have considered the submissions of the parties and perused the material available on record. We have noted that the Tribunal, Bangalore Bench, in Symphony Marketing Solutions India Pvt. Ltd. (supra), after perusing the annual report of this company found that major source of income is from providing engineering design service which is not comparable to ITES / BPO functions. The Bench observed, provision of engineering design service is a high end service amongst the BPO which requires high skill, hence, it can be regarded as KPO service. The bench, therefore, excluded the company as a comparable to ITES / BPO segment. The Tribunal, Hyderabad Bench, in M/s. Market Tools Research Pvt. Ltd. v/s DCIT, following co-ordinate bench decision in Symphony Marketing Solutions India Pvt. Ltd. (supra) has also held that the company cannot be treated as comparable to a company performing ITES / BPO functions. As these decisions rendered by the Tribunal are for the very same assessment year, respectfully following the same, we direct exclusion of this ....
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....h TCS in the year 2009 which has led to shooting up of its profit margin to 13% to 68%-70%. This factor itself points out that its high profit margin were due to its huge brand value, which cannot be held to be comparable with captive service provider like Assessee Company. So far as the decision of ITAT Delhi Bench in the case of 'Techbooks International Pvt. Ltd' is concerned as pointed out by the Ld. Counsel, we find that this decision of the Tribunal has been distinguished and explained by the subsequent three decisions of the Delhi Bench of the ITAT, wherein, the Tribunal has categorically held that, in absence of any segmental details and segregation of the total revenue this comparable company cannot held to be comparable. The relevant observation of the Tribunal in the case of Ameriprise India Pvt. Ltd (supra) reads as under:- 12.5 We have gone through the annual report of Company and have carefully considered the reasoning given by the coordinate Bench in the case of Techbook International P Ltd (supra). On perusal of Schedule 'O' - Notes to Accounts of the Standalone financials of the Company, it is clear that the Company is engaged in "transaction processing" - ....
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....ionally dissimilar and the segmental information are insufficient. The TPO repelled the assessee's objections and included it in the final set of comparables. 12.2. We have heard the rival submissions and perused the relevant material on record. A copy of the Annual report of this company is available on page 398 of the paper book. Ld. Counsel for the Assessee submitted that like TCS e- Serve International Limited, this Company is also engaged in providing 'Transaction processing' and 'Technical services'. By referring to Profit & Loss Account in standalone financials of the Company it was pointed out that during the relevant financial year, the Company has received Income of Rs. 1,35,94,110/- from Transaction Processing and Other Services. On referring to Schedule 'O' - Notes to Accounts it is given that - "Background and principal activities TCS e-Serve Limited is engaged in the business of providing Informaiton Technology - Enables Services (ITES) / Business Process Outsourcing (BPO) services, primarily to Citigroup entities globally. The Company's operations broadly comprise of transaction processing and technical services. Transaction processing incl....
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....ested by the ld. AR under the TNMM, then it will be very difficult, if not impossible, to find out a ditto comparable. A company which satisfies the broader parameters of comparability in the overall same segment, cannot be excluded due to somewhat different nature of such overall activity. An examination of the comparables chosen by the assessee, which have been accepted by the TPO, also satisfy only the test of overall similarity and not the peculiar similarity, as has been now contrastly contended for the exclusion of this company. This argument, therefore, fails." 12.5 We have gone through the annual report of Company and have carefully considered the reasoning given by coordinate Bench in the case of Techbook International P. Ltd. (supra). On perusal of Schedule 'O' - Notes to Accounts of the Standalone financials of the Company, it is clear that the Company is engaged in "transaction processing" and "technical services" activities. No separate segmental details are available. On a careful reading of the decision of coordinate Bench in Techbook International P. Ltd. (supra) it is clear that Schedule 'O' - Notes to Accounts in respect to carried out by Company and rele....